MTN and Airtel as Payment Services Banks: Should Commercial Banks be Worried?


The major Nigerian telecommunications companies, MTN Nigeria and Airtel Africa, have received “Approval in Principle” (AIP) from the Central Bank of Nigeria to operate as payment services banks.

Payment service banks are banks that accept deposits from individuals and small businesses, provide payment and transfer services in Nigeria, issue debit and prepaid cards, manage electronic wallets, and engage in business transactions. other operations approved by the CBN. To legally engage in these operations, a PSB license from CBN is required, which these telecom operators have now obtained.

This news has been received with mixed feelings from fintech stakeholders and the general public alike as they assume there will be closer competition between telecom operators and traditional banks.

What you should know

The main objective of payment service banks is to increase financial inclusion by providing small businesses, low-income households and other financially excluded entities with access to deposit products and payment / debit services. transfer via low value and high volume transactions in secure technology. piloted environment.

The Approval in Principle (AIP) process is only the first step in becoming a PSB. Promoters of a proposed bank must apply to the CBN for a definitive license no later than six (6) months after receiving the AIP

Analysts on the Nairametrics onTheMoney series, hosted on Clubhouse on Saturday, November 6, 2021, examined the incursion of telecom companies into the banking industry and agreed that the licenses will help CBN achieve its goal of financial inclusion.

Edward Okonkwo, co-founder of Nairametrics, said that “The banks have nothing to fear because the way the PSB is structured is similar to the situation of midwives since the PSBs would be subordinate to the commercial banks.”

He also said banks shouldn’t worry about revenue sharing as the funds would still be with the bank.

“Banks should start thinking about how to create more loans and use the infrastructure at lower cost to distribute the loans. With new initiatives underway such as credit bureau, fintech AI or credit profiling services, it means there are a lot of opportunities appearing in space and enough income for everyone to share.

“Yes, the bank can lose part of its traditional bank income like the N26 to move money, but let the bank give more loans and make money from the loans because the PSB will not compete with the banks in this space. I see it as a win-win ”, he explained.

Additionally, he said the arrangement was a victory for commercial banks as they can spend less time making forays into remote areas, leaving MTN and Airtel to cover these while they focus on the granting of loans. According to him, this is a victory for consumers as most customers only use the money for transactional purposes, which would reduce the cost of the transaction. It is also a victory for the sector because the CBN would be able to achieve its financial inclusion objectives by reducing acquisition costs without putting a lot of pressure on the banks.

Collaboration with the commercial bank

At the Clubhouse event, Ayobami Omole, TMT analyst at Tellimer also said: “What this means for the industry is increased competition and increased competition means that service delivery and costs to end users are expected to improve.

“I don’t think banks need to worry because ultimately, depending on how things go, there will always be an advantage for them to integrate.

“MTN and Airtel can act as aggregators for banking services. The license that MTN and airtel have is a PSB license and under the license they cannot grant loans directly ”, he said.

Omole explained that in places like Kenya, Safaricom’s lending service works with two of their banks. As a result, both banks have been able to increase their loan portfolios, especially for individuals, thanks to the Safaricom loan facility.

“We can see the same thing happening in Nigeria, where telecommunications companies are partnering with commercial banks. It may not translate to bad news from the banks, but it is still too early to tell.

“The PSB license does not allow telecom operators to grant loans from deposits, but they can collaborate and act as a channel. It also depends on what the CBN allows in terms of collaboration ”, he added.

Speaking about the fate of fintechs in light of the recent development of telecom operators, he said fintechs could face intense competition, leading to lower transaction costs for customers. Due to the increased competition, Omole has also encouraged banks to focus on lending and be more creative in generating income.

What can payment service banks do

According to the CBN, Payment Services Banks can perform the following actions:

  • Accept deposits from individuals and small businesses, which will be covered by the deposit insurance plan.
  • Perform payment and remittance services (including inbound cross-border personal remittances) through various channels in Nigeria.
  • Sale of foreign currency made from inbound cross-border personal remittances to licensed money changers.
  • Issue debit and prepaid cards on its behalf.
  • Operate electronic wallets.
  • Provide financial advisory services.
  • Invest in FGN and CBN securities.
  • Perform such other activities as may be prescribed by the CBN from time to time.

What payment service banks can’t do

Payment service banks (PSBs) do not perform the following activities:

  • PSOs would not be able to grant any form of loans, advances and guarantees (directly or indirectly).
  • PSOs would not accept foreign currency deposits.
  • They are not allowed to exchange foreign currencies except for remittances.
  • Insurance underwriting would not be possible for PSOs.
  • PSB would not accept any electronic closed system values ​​(eg airtime) as a deposit or form payment.

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